BAF 3M1 ACCOUNTING & BUSINESS Chapter 1, Section 1.1 – 1.3

What is Accounting?  The process of _____________, _____________, _______________ and ________________financial data for decision making  Five main activities: 1. Gathering financial information about the activities of a business or organization 2. Preparing and collecting permanent records (i.e. evidence of purchase, proof of payment, payroll) 3. Rearranging, summarizing, and classifying financial information into a more usable form (statements) 4. Preparing information reports and summaries for management, bankers, and investors (i.e. “Is the company making money?”)

Accounting – An information system  Owners and Managers may ask:  Is the business making money?  Are the selling prices of products high enough?  How much does the business owe?  To whom was cheque No. 101 issued to?  How much did this employee earn last year?  Are our customers paying their bills on time?  Other persons or organizations may ask:  Should I lend money to this organization? (banker)  Should I sell this business? (owner)  Is the business paying the proper amount of income tax? (government)

Why study accounting?  Accounting on the job  Post-secondary studies  Accounting in daily life  Personal budget, personal financial records, personal income tax return  Owning your own business  Decision-making (banking, pricing, taxes, payroll)  Accounting as a profession  Chartered Accountant (CA), Certified General Accountant (CGA), Certified Management Accountant (CMA)  Public accountant – main role is auditing Auditing is the examination and testing of ‘the books’, records, and procedures of a business to be able to express an opinion about its financial statements.

Characteristics of Business  Types of businesses 1. ______________: sells a service to the public; it does not make or sell a product as its main activity 2. ____________________: buys goods and resells them at a higher price for a profit 3. _________________________________: buys raw materials, converts them into a new product, and sells these products to earn a profit 4. ______________________________: may carry on activities to meet social needs and not for financial profit

Forms of business ownership  Three main forms of business ownership:  _________________________ (_________________): “J. Wouk, Carpenter” or “S. Abrahim, Capital”.  ____________________ (____________________): “Fogle, Silver, and Zimmerman, Accountants”  ___________________ (______________________): “Apple”, “Microsoft”, “Blue River Homes Limited” Note: Most of the businesses we study in this text are sole proprietorships. Partnerships and corporations in chapter 13

BAF 3M1 ACCOUNTING & BUSINESS Chapter 1, Section 1.4 – 1.7

The Nature of Accounting  Accounting work can be divided into 3 categories: 1. ______________________________________ : occurs nearly _____________________ of the year (processing bills; preparing cheques; daily banking; recording transactions; preparing business papers) 2. ______________________________________: occur at ____________________________ (pay cheques prepared every week; bank accounts checked every month; financial reports prepared every month; income tax return prepared every year) 3. ______________________________________: some accounting activities cannot be predicted (employee resigns, bad cheque, new equipment to reduce costs)

The Accounting Cycle  Accounting activities are performed in relation to equal periods of time called _______________________ (usually one year)  The accounting cycle is comprised of a ______________ _________ of accounting ________________ carried out during each _________________ _____________  See ‘Accounting Cycle’ handout Note: Each cycle is built upon cumulative results. The business does not start fresh each fiscal period.

Becoming a Professional Accountant  Entry-level positions with small firms require only basic accounting skills. High-level positions require exceptional competence and training.  Accountants get their formal training (studies) in high school, college/university, or from a professional organization.  Most colleges and universities offer diplomas/degrees in business  Professional accounting organizations:  Certified General Accountants Association (CGA, Society of Management Accountants of Canada (CMA), Canadian Institute of Chartered Accountants (CA)

Roles of Accounting  Most people confuse “accounting” and “bookkeeping” (bookkeeper or accounting clerk). They’re related, but they’re not the same.  The Accounting Clerk: clerical in nature and concerned with ___________________ _________________(transactions properly recorded, record entries, payroll, banking)  The Accountant: broader in scope and requires __________ _________________ and _________________(develop systems, ensure GAAPs are met, prepare reports, interpret data, attend meetings, make decisions, supervise work of all accounting employees)

How Accountants Use Computers  Computers facilitate “number crunching” activities – recording, sorting, calculating, summarizing, storing, displaying, and printing  However, while computers are important, they do not replace the role of the accountant (decision making). They are merely tools for accountants.